Officials looking closely at loopholes

Slot-machine gamblingis estimated to general $1 billion a year in tax reductions.
By PETER JACKSON
ASSOCIATED PRESS
HARRISBURG, Pa. -- The term itself -- "tax expenditures" -- suggests something that needs reining in. And some legislators believe that's exactly what is needed.
In fact, it's a catchall phrase the state government uses to describe the tax credits, deductions, exemptions and exclusions that allow Pennsylvania taxpayers to legally sidestep at least part of what they otherwise would have to pony up to the commonwealth.
Another name is "loopholes," and there are so many that listing them consumed 74 pages in the governor's last budget book.
They carry a big price tag -- roughly $26 billion this year, more than the state's General Fund budget -- that translates into real savings for many residents and businesses.
But tax breaks, like taxes, exist at the whims of legislatures. With property-tax cuts on the front burner again in a special session and the embarrassment of the pay-raise debacle still fresh in constituents' minds, it's small wonder so many legislators are looking for money to augment the estimated $1 billion a year slot-machine gambling is expected to provide in tax reductions for homeowners.
Repeal has some appeal
Conservatives within the House Republican majority have long championed the idea of abolishing property taxes and replacing the more than $8 billion they generate with a reduced sales-tax rate that is applied to a wider range of products and services.
Their initial bill perished last week amid bipartisan opposition to proposals to lift the sales-tax exemptions -- or as Democrats portrayed it, to increase taxes -- on such essentials as clothing and food.
"You are shafting the people of this state by throwing away the best and only option we have" to abolish property taxes, warned Rep. Samuel E. Rohrer, R-Berks, the bill's sponsor.
But the idea of repealing tax breaks to free up additional money, to provide at least deeper reductions in property taxes, is alive and well. And there are plenty to choose from.
Sales-tax exemptions are the most extensive. Free from the 6-percent levy are the sale of machines and materials used in manufacturing, and the services of a long list of providers ranging from dry cleaners and entertainers to hospitals and lawyers. Also exempt, besides food and clothing: electricity, heating fuel, telephone service, over-the-counter medicines, caskets, firewood, yard-sale items, horses, school buses and -- believe it or not -- tips left for a waitress or bellhop.
For the personal income tax, there are exclusions for retirement income; credits for low-income taxpayers; and deductions for business expenses and gains from the sale of a principal residence. There are corporate income-tax credits for companies that create jobs and deductions for businesses' past operating losses.
Not quite ready
House Majority Leader Sam Smith said the vote on Rohrer's bill was a signal there is not support in the House for a complete abolition of the property tax, but that it left the door open to a less radical expansion of the sales tax, possibly combined with an increase in the personal income tax -- a step that several legislators have proposed to bolster the property-tax cuts.
"I view the last couple of days of floor action as kind of whittling away what we can and cannot do with property taxes," the Jefferson County Republican said.
Democratic Gov. Ed Rendell, who says he is willing to consider any additional property-tax cuts that have bipartisan support in the Legislature, chuckled at the numerous proposals that call for increasing the income tax. His own 2003 proposal to increase the income tax by 34 percent to help finance property-tax cuts was pared to 10 percent and the extra money earmarked for other initiatives.
"If you live long enough," he said, "everything comes around."
XJackson is the Capitol correspondent for The Associated Press in Harrisburg.
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